Farmville Drought: Zynga Stock Nose Dives

zynga

Zynga stock took a nosedive June 12, dropping as much as 13 percent in a fall that triggered a short-sale circuit breaker, designed to halt stock trading when the price drops below 10 percent. The ban will be in effect through Wednesday.

It was the largest drop for a stock that went public in December with an IPO value of almost $9 billion. Following three months of heavy losses, the company has shed over $5 billion in value. Trading was halted Monday at 10 a.m. Eastern time when the stock slipped to $4.98, a 10.2 percent drop from the previous day.

Speculation that a relaxation of gambling laws might benefit the company had its stock price trading at $15.91 on March 2.

The news follows a report published last week by Cowen & Co analysts Doug Creutz and Jason Mueller that predicted the gaming market on Facebook was in an “accelerating user tailspin” as more players switch to apps for mobile gaming. Zynga’s active daily usage had dropped 8.2 percent to 54.2 million in May, according to AppData.com.

“We believe that interest in Facebook-based gaming may have reached a negative inflection point,” Cowen & Co analysts Doug Creutz and Jason Mueller wrote, “as more casual gamers migrate to mobile platforms.”

Facebook accounts for 90 percent of Zynga’s revenues, and the company is Facebook’s largest revenue generator. Facebook gets a cut of Zynga’s virtual revenue in exchange for access to its audience. The game company recently launched Zynga.com in order to be less dependent on Facebook,

AppData.com noted a roughly 30 percent drop in Facebook-linked players in the last month.

The company has recently expanded into 12 new languages. It also shares a partnership with Weibo, a popular Chinese microblogging similar to Facebook and Twitter that has 300 million active users, to facilitate its transition to China’s potentially lucrative gaming market.

Despite its drop in stock price, Zynga continues to trade at 20 times forward its earnings, according to Thomson Reuters data.

Sales of Zynga stock were also halted May 18 following Facebook’s botched IPO as flocks of scared investors abandoned stock.